To many readers, video gaming may seem like pastime reserved for a small tribe of socially-awkward folk with Vitamin D deficiencies. Yet any marketer in China should be paying attention. China’s $36 billion video gaming market is four times larger than its movie industry and a driving force behind the inclusion of eSports as a medal event in the 2022 Asian Games, and even a possible demonstration sport at the 2024 Paris Olympics as the IOC wrestles between tradition and appealing to vast new audiences.
Chinese gamers have long been stereotyped as young males spending their free time in dingy internet cafes; their gaming-contorted fingers covered in a thick film of greasy food and crumbs. The People’s Liberation Army has even attributed gaming as a major reason so many young men fail its physical tests.
Nevertheless, profiles are changing. Gender fluidity is one of the big trends happening in the China market. Just look to the runaway growth of men’s makeup, a spike in males buying lacy-style and see-through fashions on Taobao, while women are buying up suits and almost half of cars from brands typically purchased by men in other markets such as Maserati and Porsches. It seems now that gaming is no longer just the realm of males, with some estimates claiming females make up almost half of China’s 530 million gamers.
Chinese consumers’ obsession with gaming should give marketers clues into how their target markets – male and female – see the world. For many, gaming is a form of escapism from boredom during long commutes and the 9am-9pm-6 days a week work schedule in many Chinese firms. But it is also a pillar in many Chinese social lives; a convenient place to meet others with shared interests, and the closest thing many have to playing team sports, brother and sisterhood, and even a place to meet love interests.
When many marketers think of utilising games in their strategies, it revolves around gamification to connect and engage with Chinese consumers. Whilst there are some success stories, most attempts simply aren’t interesting, relevant or well-integrated into other marketing initiatives, with few gamification investments attracting more than a handful of genuinely engaged participants.
The sophistication of game developers is presenting increasingly diverse opportunities to connect with the target market during an emotional moment in their day. Female-focused mobile dating game Love and Producer saw an estimated $32 million of in-app purchases after one month of being launched. High-end cosmetics brand M.A.C. released five Honour of Kings limited-edition lipsticks targeting its 100 million+ female players – 14,000 were preordered and all five lipstick styles sold out across all sales channels within 24-hours of launching.
Combined with awareness-building initiatives through placements and partnerships, gaming is also looking to become a legitimate sales channel for goods and services. The industry has even created its own sect of KOLs who are supported by millions of live streamers, all potential endorsers of products and services.
With Beijing’s new gaming approvals freeze starting to thaw, games and their players will continue to evolve into more sophisticated marketing and sales platforms to connect with the lucrative male and female millennials, and Gen-Zs. Contact China Skinny for advice on how best to do that.
With the extended May Day Holiday (in hope of stimulating spending), there’ll be no Skinny next week, but we’ll be back the following Wednesday. Go to Page 2 to see this week’s China news and highlights.
Since Australia established formal diplomatic ties with the People’s Republic of China in 1972, the country’s fortunes have become increasingly linked to the Middle Kingdom. No Western country’s economy has benefitted more from China’s rise than Australia. Much of China’s unprecedented economic growth has been built with Australian iron ore and powered by Aussie coal and liquified natural gas. In a way, Australia’s resource traders blazed a trail for Australian exporters, teaching cultural lessons about doing business in China, and raising China’s profile as a destination for exports.
Since Chinese consumers have started entering the middle class, Australian brands have been relatively quick to make their goods and services available to them. Over the past couple of Singles’ Days, Australian products have been the third and fourth highest ranking country for product origin, even though Australia isn’t even in the top-50 countries by population.
Australia’s success in exporting to China always had pretty good odds. Australia’s relatively close proximity to China, in both flight time and time zones, makes it easier to get up to the market to do business. And unlike other major western economies, Australia doesn’t have a large domestic base or similar countries close by to send their wares, so it has always had to be a little more adventurous when prospecting for export markets. It is also the often-unthanked Chinese residents in Australia and visiting tourists who have helped promote many Australian things to their friends and family back in the Mainland. No country outside of Asia has more people of Chinese heritage per capita than Australia, on top of the 1.4 million Chinese who visited Australia last year.
In 2017-2018 Australia’s exports to China were $123.3 billion, or 30.6% of total exports. This dwarfs Australia’s number two destination of Japan where exports were $51.3 billion. Over the past five years, exports to China have surged 56%, whereas Japan grew by just 6%. Yet it’s not all Kumbaya and shrimp and steak barbecues, Sino-Australian relations have deteriorated lately, particularly over the past-12 months.
Australia’s position as one of the pioneering, best practice and reliant exporters to China – balanced with its increasingly precarious stance on geopolitics – makes it one of the most important and interesting relationships to monitor in today’s globalised world. That’s why China Skinny was honoured to be back again this year working with Austcham Shanghai on the second annual Westpac Australia-China Business Sentiment Survey which launched yesterday in Sydney. The survey provides a platform to really understand how Australian businesses on the ground in China are faring in light of the geopolitical tensions and slowing economic growth.
To Australian businesses’ credit, we had 211 complete the survey this year – 33% more than last year. Overall, sentiment was down 6.7% from last year but remained largely optimistic – with 71.6% either optimistic or slightly optimistic about the next 12-months; 81.5% in their five-year outlook. The results also pleasingly demonstrated an increase in Australian businesses’ forecasting profitability in 2019 – a strong 78.9%, from 62.5% in 2018.
One of the promising findings from the survey was that Australian businesses appear to be maturing and realising that China is a market that requires tailored initiatives. 61.1% of businesses surveyed will offer unique products and services for the China market this year – and are 32% more profitable as a result.
Domestic consumption was again considered the most important opportunity for Australian businesses and is also being supported by 26.6% investing in market research and development – 10.7% more than last year. 74.9% have a digital strategy in place or in development, with 59.7% having one that incorporated ecommerce. For those businesses already selling online, they are selling on an average of 2.5 platforms, versus 2 last year. Almost a quarter of businesses surveyed are early adopters of New Retail, with 66.0% of these businesses experiencing a 10% rise in revenue and 55.4% benefitting from increased brand and market insights.
There’s many, many more interesting insights throughout the report. The results aren’t just a barometer for other Australian businesses exporting to China; they provide any company working in China with a great benchmark to understand the common challenges and opportunities. We’d recommend you download the report and see for yourself. You can get it by clicking/tapping here.
A special acknowledgement to our own Alexander Kelso and Austcham Shanghai’s Stephanie Smith, who have worked tirelessly behind the scenes to bring the survey to life. Go to Page 2 to see this week’s China news and highlights.
Fancy a tonic favoured by Chinese emperors that cures painful joints, frail kidneys, and weakness and anemia in women? Or how about a milk beverage that will enlarge your breasts from an A-cup to a D? Perhaps a coconut drink that whitens your skin and will make you more buxom?
Believe it or not, these are all advertising claims in China, and not by small fly-by-night operations. The cure-all tonic was a top-seller from Hongmao Pharmaceutical, who outspent P&G in 2016 to become China’s largest advertiser. The breast-enlarging milk drink was the product of China’s largest beverage group Wahaha, and the magical coconut juice comes from the producers of China’s most popular coconut milk.
Reports of such advertising and other headline-grabbing news such as hordes of Chinese tourists lured to Sydney University believing it was a setting in Harry Potter movies may have some believe that Chinese consumers are a gullible posse. Don’t be misled. Whilst some consumers in lower tier cities are making discretionary purchases for the first time and lack some confidence, most middle-affluent class Chinese are incredibly sophisticated. While we’re seeing a rise in impulsive purchases, Chinese consumers typically don’t take things at face value and do significantly more research before purchasing products and services than their Western peers.
Much of this research comes down to an inherent lack of trust. This is confirmed in virtually every project China Skinny works on, in which Chinese consumers’ purchase journey involve an extensive series of touch points across online and offline channels before a purchase is made.
Most readers will be aware of the fake vaccines, fake condoms and even fake zoo animals. Yet Chinese consumers can’t even rely on cross border ecommerce, which is held up as the beacon of trust – supposedly straight from the source from a more dependable origin. In reality this isn’t true; 40% of cosmetics sold through cross border on Singles’ Day ’17 were fake for example.
Although China updated its advertising laws in 2015 to be much more punitive, many false promises continue to slip though. China has the most fragmented bricks & mortar retail landscape of any major economy, and an online sector containing tens of millions of stores that even Alibaba and Tencent struggle to control in light of their advanced data mining and AI. The regular scams have been one of the drivers behind China’s $9 billion key opinion leader (KOL) industry, who are often more trusted than brands even though close to 70% of KOLs have fake fans and engagement. Regardless, over 60% of Chinese consumers are receptive to online influencers compared with 49% in the US and 38% in Japan.
Although China’s marketing landscape is littered with fakes, foreign brands shouldn’t take Chinese consumers to be fools – they are anything but. It is good to be aware of the misleading claims out there, but don’t dare to try it yourself. It will be found out and shared on social media en masse. Chinese consumers are unforgiving to those who disrespect their intelligence, particularly foreign brands. China Skinny can assist to ensure you can still succeed by keeping everything above board.
On another note, we’re hiring! If you’re a native English speaker based in Shanghai who is curious, intelligent and personable and happy working across diverse and fascinating projects, go ahead and apply. More information here. Go to Page 2 to see this week’s China news and highlights.
Chinese buyers have been the top foreign buyers of US residential property for six years straight. Similarly, no other overseas vendees buy more in Australia, New Zealand and a host of other countries. One common characteristic purchasers share is a preference for the shiny and new over the battered old character home.
In China, you won’t find locals spending their weekends combing garage sales for deals, and even the ecommerce-mad populous buy a much smaller share of second-hand goods than the eBay-Craig’s List-Gumtree-Trademe-type shoppers of the West.
Chinese consumers’ reputed love of all that is new comes down to a number of factors. We don’t need to look back far in history – during the reign of Mao – when new goods were in scant supply, creating a sense of prestige when buying something brand new. This has been passed over a generation, and its legacy has contributed to the all-important status that comes with buying new versus the stigma attached with goods that have been loved by someone else.
Another contributor is Chinese consumers’ inherent lack of trust. In China it is far more common to fake a second-hand good, and more difficult to trace, than a new product that can be bought directly from the source or a trusted vendor. There are also more reliable courses of action if something goes wrong. Couple that with the seemingly-infinite supply of cheap, new things, and all roads appear to lead to brand spanking new.
Nevertheless, the single-minded view that everything must be shiny and new is starting to waver. One of the most notable signs is the car industry. Half a decade ago, five in every six cars purchased smelt new (although not the new car smell as we know it in the West). Last year, as new car sales contracted 2.8%, there were 11.5% more secondhand cars bought. Although the ratio is still far behind America, where pre-loved outnumber new by more than double, China’s split is growing fast, from 43.0% in 2017 to 49.1% last year. The rise in the desirability for second-hand cars is followed by other segments from luxury goods to clothing swaps.
The trend is being driven by millennials who don’t have the same historic hang-ups as earlier generations and seek value. They’re familiar with consuming things used by others with the explosion of the sharing economy, covering everything from fashion to bicycles.
What does that mean for brands? In many product categories, the competitor set will increasingly span beyond the other new things for sale online and in stores to include second-hand goods. Consumers may also look to resale value, service and even sell-back options when making decisions around purchasing.
The trend spans beyond goods too, contributing to preferences in the service industry such as tourism. More Chinese travellers are finding allure in the edgy, hipster interiors for hotels, restaurants, attractions and stores, when in the past, it would have been considered dirty and rundown. It is another sign of maturing Chinese consumers, driven by the youth – one which will hopefully giving the environment a small reprieve.
On the subject of Chinese tastes and preferences, if you’re looking to learn more while taking in a few memorable spring days, China Skinny’s Mark Tanner will be speaking at China Connect in Paris on March 12-13. It is one of the most-established and thoughtful China-focused conferences outside of China – we hope to see you there! More information here. Go to Page 2 to see this week’s China news and highlights.
There has been much uncertainty about China’s new ecommerce laws which will launch in earnest on 1 January 2019. The unknown direction around cross border ecommerce and the daigou trade is likely to have kept a few businesses up at night.
We are thankful to finally have some clarity around the new laws. Here are some of the key highlights of the new regulations announced on 21 November, with the new, complete translated cross border list here.
Cosmetics, Health Food, Infant Formula & Other Consumer Imports
Cosmetics, health food, infant formula and other retail products sold over cross border ecommerce will remain exempt from mainland Chinese registration, filing and certification. Speculation that cosmetics not tested on animals could not continue to be sold in China through cross border ecommerce has been laid to rest.
Exporting to Chinese Consumers through Brand.com Sites
The new regulations state that brands selling direct to consumers in China from their website or ecommerce platform based outside of the Mainland will be required to register their platform with Chinese customs.
Increased Purchase Limits
The single purchase limit will increase from ¥ 2,000 ($288) to ¥5,000 ($720) and the yearly purchase amount increases from ¥20,000 ($2880) to ¥26,000 ($2,745) per year. Cross border purchases that fall within the increased limits will be exempted from duties and receive a 30% discount on consumption tax and VAT.
Deterrents for Daigou
We noted in October that the road for daigou was likely to get tougher as Beijing tries to redirect cross border sales to the legitimate channels. The new laws have confirmed that all daigou who advertise online need to register with the government and pay full import taxes. In recent months, customs have stepped up airport checks, while Chinese courts have jailed several merchants for up to 10 years for tax evasion. We expect larger daigou will continue their trade, however tens of thousands of smaller operators are may see this as just too much trouble and quit – easy come, easy go.
Legislation as expected
Overall the regulations are not surprising news. Of late, Beijing has been promoting its stance towards free trade at events such as Davos and this month’s CIIE. Closing the door on cross border commerce would have seemed hypocritical and contradictory. Similarly, tech giants such as Alibaba and JD have invested significant sums in building their cross border businesses, and would have been in Beijing’s ear about the benefits of the service. Discouraging it would have driven more purchases to the less-trackable grey trade. Many Chinese consumers have also become fans of cruelty free cosmetics, imported health and formula products; taking these options away would have caused quite a stir, which no one needs right now.
The law is positive for cross border ecommerce and will see it continue to grow. However in most cases cross border should be seen a stepping stone to a wider range of online and offline sales channels in China. This will raise awareness and accessibility for your products and decrease your exposure to law changes and other risks. China Skinny can assist in developing a strategy for this.
Alibaba and Tencent have done it again. They’ve delivered record-breaking profits that blew past analysts’ forecasts, signalling just how healthy China’s consumer market remains, particularly for the digital sphere. Alibaba’s profit almost doubled to ¥14 billion ($2.1 billion) and Tencent’s grew 70% to a handsome ¥18.2 billion ($2.7 billion). The results have seen their respective stock values soar into the $400 billion-plus-club, which was formerly the sole domain of American tech giants Apple, Google, Facebook, Microsoft and Amazon.
Alibaba’s rise was mainly on the back of its ecommerce business whose active shoppers grew 33 million from a year ago – a third more people than live in Scandinavia, yet a modest 7% increase. Their average spend is what shifted the dial – around $41 – over a third more than this time last year, representing a maturing online shopper. Alibaba’s constant innovation continues to pay off, which has seen a host of new AI and marketing capabilities and investment in an ever-wider breadth of online and offline touchpoints, all held together with some impressive tech infrastructure and a wealth of data.
A comparison of the world’s two largest ecommerce companies, Alibaba and Amazon, shows some stark differences in operating models. Amazon’s end-to-end fulfilment model saw it earn $197 million in the same quarter Alibaba earned $2.1 billion. For every dollar of revenue Amazon made 0.5 cents; Alibaba took home 63 cents. Both companies are chasing the less tapped online shoppers of emerging markets, it will be interesting to see which business model is more sustainable.
Over at the Tencent campus, we are seeing a potent convergence of gaming and social media. On the back of 963 million active WeChat users – 19.5% more than a year ago, mobile gaming has drawn in some 200 million players. Smash hit game Honour of Kings allows users on WeChat to discuss strategy, pull in other friends, see each other’s scores and work together in competing for gaming glory. Its social nature has attracted a record number of female players for a game of its type. The game generated about $828 million in revenue in the first three months of this year, making it the biggest money making smartphone game in the world.
Tencent’s profit was just 69% of its closest global equivalent Facebook. Yet with 2 billion users, Facebook is making significantly less per user than Tencent. Revenue is also much more one-dimensional, with 98% coming from advertising. Of Tencent’s ¥56.6 billion ($8.5 billion) revenue, just ¥10.1 billion came from advertising – ¥6 billion from WeChat, offering plenty of scope for growth. For the majority of its income, Tencent has done a remarkable job of squeezing small payments from many of its users, from games, to digital add-ons and personalisation, to gifting, all enabled by the penetration of mobile payments.
The takeaways from Alibaba and Tencent’s results are not that they make a lot of money, but how China’s most successful consumer-facing businesses have quite different business models to what we know in the West. Understanding what makes their models unique provides invaluable insights into what appeals to Chinese consumers and how successful brands are serving them – many of which can be replicated on smaller scales for foreign brands. Pyramid schemes are out, entertainment and mobile micro-payments are in. Agencies such as China Skinny can assist with such insights and analysis.
On the subject of ecommerce: for our readers in Melbourne, China Skinny’s Mark Tanner will be joining AustCham and the Victorian Government next Monday 28 August at noon to discuss how to navigate and harness China’s ecommerce opportunity. Register for the event here. Go to Page 2 to see this week’s China news and highlights.
The glimmering prize of the China market has led many foreign brands to make sacrifices in their pursuit of Chinese wallets. The $50-billion-plus beauty industry is particularly symptomatic – a field dominated by international brands. Chinese females, and increasingly males, are avid cosmetics consumers spending a much larger portion of their incomes on it than their Korean, Japanese and US equivalents – some shelling out as much as 30% of their take-home pay.
Yet to stock your face creams and makeup in the average mainland department store, there are a different set of regulations than Western markets, such as compulsory testing on animals. Such rules have forced cosmetics brands to soul-search about how important the China is to them.
British cosmetics brand Nars recently joined cosmetics companies such as Jurlique, L’Occitane, Yves Rocher and Caudalie in renouncing their stance on no animal testing in order to sell in bricks & mortar stores in China.
It would not have been an easy decision for Nars or any of the brands it followed. Most successful foreign brands in China have been built on the back of their popularity in home markets. Brands like Nars can attribute their success in the UK to core values such as anti-animal testing. As Nars discovered by the streams of protests on social media, many of their formerly-loyal customers at home and in other Western markets will now buy their beauty products elsewhere.
In a bizarre set of double standards, Chinese cosmetics brands do not need to be tested on animals. We’re hopeful that Li Keqiang’s Summer Davos announcement that China will be “treating domestic and foreign companies on an equal basis,” coupled with lobbying from animal rights groups and the big cosmetics companies means that these archaic regulations won’t be with us too much longer.
In the meantime, there are other options for cosmetic brands that don’t test on animals who want to sell in China – some which can bring a lot of success. Cosmetics are the top selling category in cross border ecommerce, with 45.7% of shoppers having purchased them according to iResearch. Forrester Research predicts that cross border will account for 20% of China’s total ecommerce market by 2022.
Whilst brands such as Jurlique have found success in China since forgoing animal testing in 2013, Chinese consumers increasingly consider core values behind a brand in their purchase decisions, and often reward those who stay true to them.
When targeting Chinese consumers, companies should consider the wider implications for their brands. Tailoring products too much for a Chinese consumer can often estrange other customers, as Hollywood has discovered. Even tourism operators should consider how catering to Chinese visitors could affect their perception amongst their other visitors and in turn their authenticity to Chinese tourists. It’s about balance, which is something we always consider at China Skinny when providing China branding recommendations and market strategies. Go to Page 2 to see this week’s China news and highlights.
Beijing recently acknowledged that it needs to attract more foreign talent to help its transition to an economy led by consumer spending and innovation. It has even announced plans to set up its first immigration office to assist.
China is right in doing more to attract foreigners to its shores. 44% of startups in the Silicon Valley had at least one immigrant according to a 2012 survey.
Whilst China has unique characteristics and shouldn’t be blindly trying to replicate the world’s international cities and innovation hubs, it could probably learn a thing or two from them. Around 40% of residents in New York, London, Singapore, Sydney, Toronto and Los Angeles are born overseas, whereas Shanghai and Beijing have less than 1%. Shanghai’s foreigner population actually declined 2% in the first quarter of last year. About 600,000 foreigners officially live with China’s 1.4 billion people – there are five times more migrants in London alone.
In follow up to the announcement about opening an immigration office, the State Administration of Foreign Experts Affairs stated it would be ‘simplifying’ the working permit process for foreigners. From 1 November, expat eligibility for work permits will be scored on current salary in China, educational background, number of years of work experience in China, Chinese language proficiency, age and location.
Although the scoring system hasn’t been announced, it is likely that adventurous youth will find it very difficult to legally work in China unless they graduated from a top university, speak incredible Chinese, are on an epic salary and live in the middle of nowhere. The Beijinger did a great speculative quiz on how expats’ acceptability could be ranked.
For innovation, youth often have a different way of looking at things and are less biased by long-held beliefs or habits – two of the key ingredients for game-changing innovation.
Youth can play an even bigger role in China’s ability to market itself and its brands. China spends an estimated $10 billion annually on “external propaganda” with very little return. A global study by London-based Portland Communications recently found China ranked dead-last of 30 countries for soft power.
While hosting a few big events, opening Xinhua news offices and Confucius Institutes around the world, and building sports stadiums all helps; the most powerful gains in China’s brand will come from the viral digital channels of the grassroots influencers championing the country through their social networks.
Trends worldwide are rarely set by crusty middle-aged men with love handles, but rather the digitally active youth with cooler haircuts and a better fashion sense. There are plenty of them wanting to live in China, so the country should be doing what it can to welcome them to cities like Shanghai, Beijing and beyond.
We appreciate that China shouldn’t just let anyone in, but when the new pilot expat ranking system is launched on November 1, we hope that Beijing has considered the importance of youth in continuing their momentum to becoming a true world leader for innovation. We will all be richer for it. Go to Page 2 to see this week’s China news and highlights.
Just as we’ve heard of many successful Western brands in China, most of us are aware of the folklores of failures from those who entered ill-prepared, naive and even arrogant. From Home Depot burning through $160 million chasing a market not interested in DIY, to eBay blowing an 85% market share after hiring a local CEO and CTO who didn’t understand China; there are plenty of examples we can learn from.
Almost every business entering China these days knows to approach the market differently. Even with this in mind, there are still many common mistakes and false assumptions that we see at China Skinny. There are the simple things such as having Facebook or Youtube on Chinese webpages, and the well-documented oversights such as failure to trademark both Western and Chinese brands. Yet most lapses are a little less obvious.
One of the most common misjudgements is thinking market fundamentals work in a way we are familiar with in our home markets. While this may apply for some things, many characteristics go against natural Western instincts and intuition. China is a unique machine that plays by a whole new set of rules, with factors such as the omnipresent Government regulations and influence, local competitors operating unlike competition anywhere else, and a consumer base who are wired differently.
Chinese consumers are unsophisticated in some ways, and the most advanced globally in others. They have been through more change in the last few decades than many of us go through in a lifetime; and because of that, coupled with underlying cultural differences, they often perceive things completely differently, and act distinctively, from the way we do.
China’s retail space is much more fragmented than Western markets, while its ecommerce segment is more consolidated than anywhere. Some businesses don’t consider this when meeting a distributor. It’s common to be picked up from the airport by a prospecting distributor, and wined and dined with silver service. Following promises of covering the country, and every offline and online channel they’d ever need, many brands unknowingly give exclusive rights to the distributor. If you meet someone who actually delivers on this promise, we’d love an introduction.
It’s impossible to prepare for everything in China, but here’s an article that we’ve written with some key differences between Chinese and Western markets which may help.
For our New Zealand-based readers, China Skinny’s Mark Tanner will be at the Build and implement your digital strategy for China workshops in Auckland on 28 June and Christchurch on 30 June. Click here for more information. We hope to see you there. Go to Page 2 to see this week’s China news and highlights.
For the longest time, China was a society where it was advantageous to fit in. From an early age, children were taught to conform. However, as China aspires to transition from assembling products to designing them as well, there is much incentive to create free and creative thinkers to drive China’s businesses up the value curve.
Whilst recent Beijing policies such as tightening Internet controls and banning foreign media will discourage wider perspectives and free thinking, many more policies are cheer-leading independent thought. Initiatives such as increasing creativity programmes in schools, the rise of overseas study, and waiving overseas travel restrictions for lower-tier cities are all encouraging Chinese consumers to view things differently.
Although Government policies are helping to slowly build independent minds, much of it is being driven by increasingly educated and aware Millennials. This is evident scanning content that post-90’s consumers are publishing on social media, which is often more imaginative than content from those born in the 70’s for example.
After health and wellbeing, products and services that encourage creativity are one of the top priorities for the post-80’s generation who are becoming parents. If we look at the fashion industry, youth are making statements with the clothes and accessories they wear, much of it far more adventurous than even five years ago. And the obvious segment is tourism, where three quarters of China’s 120 million-plus outbound travellers have a preference for independent travel over organised tour groups.
There are also the less visible signs of Chinese consumers’ growing independence and individualism. A Chinese Academy of Sciences and London Business School study into Chinese names has found more creativity and variations in the names Chinese are giving to their children. Similarly, the lyrics in popular songs are becoming less about the communal ‘we’, and more about ‘me’.
Chinese consumers, particularly the high spending youth segments, are looking to express themselves by the goods they buy and experiences they share, to show their networks that they are different from 1.4 billion other Chinese. Marketers should be factoring this in with their product and service offerings, positioning and communications. Go to Page 2 to see this week’s China news and highlights.
As recently as 2012, most Chinese consumers considered international labels categorically better than local alternatives. KFC was a good example: although consumers knew deep-fried drumsticks weren’t a super-food, they were from an American company so must be safer, and therefore healthier, than Chinese options that could be cooked in gutter oil, with additives like melamine. That perception helped fuel more than two new KFC restaurant openings a day in China that year.
Things took a turn in late 2012 when state media accused a KFC supplier of pumping toxic chemicals into chicken. Subsequent scandals such as meat on the floor and altered expiry dates have shown Chinese consumers that even foreign brands with local supply chains can’t be completely trusted.
This has seen the monumental rise of unadulterated imported food into China. It’s why Carrefour just opened their biggest supermarket in Asia in Beijing, with a strong focus on imported food. It’s why the big ecommerce platforms are putting so much effort behind promoting imported food and cross border commerce, and a large reason why Alibaba just opened offices in France and Germany.
Yet, just as Chinese consumers won’t blindly purchase a foreign brand with supply chains in China, they won’t indiscriminately purchase products just because they appear to be imported. In 2013, a CCTV journalist travelled to New Zealand to find the source of a so-called New Zealand baby formula brand. The address on the can turned out to be a panel beater’s yard in Auckland whose staff had never heard of the dairy company. The exposé further fuelled Chinese consumers’ lack of trust and reinforced their need to do extensive research before making a purchase.
In a related event on Single’s Day this year, Weidendorf milk made headlines for selling out of 250,000 cases within 24 hours. The celebrations were short lived when local media and social networks were ablaze with reports that Weidendorf was not a German brand, and unavailable in German shops. The brand was in fact, owned by a Shanghai company. It turned out that the local company sourced the raw material, manufactured and packaged in Germany, apparently to EU standards, yet many Chinese consumers were still enraged about being misled and didn’t consider it truly German milk.
With more than 600 million Chinese now armed with a smartphone at all times, it is easy for them to do a background check on a brand, and most do. There are typically more than ten online and offline touch points on a Chinese consumer’s journey before they make a purchase, so deception doesn’t go unnoticed for long, and will spread like wildfire on social media. Consumers need more than just a foreign flag or pretty foreign scene on packaging to be convinced of its authenticity. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
In 2012, less than 5% of China’s online shopping was done on a mobile. Nowadays, more than half of all sales in China’s massive ecommerce market are made though a smartphone. China’s shift to smartphones has taken online shopping by storm – and all aspects of the Internet, with 89% of China’s 668 million internet users accessing through a smartphone.
However Chinese consumers’ connection with their smartphones and retail goes beyond the online world. More than three quarters of them will pull out their phone in a physical store to research a product or service’s price, reviews, competitors, specifications, heritage and how and why to use something, before making a purchase.
A Chinese mobile site should not only load swiftly, but also meet the requirements of a consumer who is out and about – needs that can be quite different from researching on a desktop in the office or at home. It’s becoming increasingly common for brands to build a website primarily for mobiles, and optimise it for desktops in China.
Apps are another popular way consumers are connecting with brands on their smartphones. In fact, more time is spent online on apps than web browsing. China’s most popular app WeChat, accounts for half of the time spent on the mobile Internet -meaning Chinese generally prefer app functions to be integrated into an Official WeChat Account, rather than a standalone app which they have to download and open separately.
There are some exceptions where consumers enthusiastically embrace a brand’s standalone app, such as L’Oreal’s which has been downloaded almost 5 million times, and even niche ecommerce apps such as FruitDay and Stardrobe. These apps have been developed by companies who understand consumer needs and develop and market apps to meet them in compelling ways. China Skinny can help with that. We hope you enjoy this week’s Skinny.
Switching Gears: Chinese Consumers Drive Surge in Gasoline Sales: Consumer-driven growth of gasoline demand in China is helping soften declining demand for diesel from industries, further illustrating the importance of the consumer class in China’s economy.
Foreign Experts Confident Of China’s Long-Term Prospects, Rejecting Blame For Causing Economic Reversals: Commentators from around the world believe the current volatility in China’s currency and stock markets is perfectly normal as China transitions to a higher value consumer and services-based economy and remain positive about China’s future. 77% of Chinese consumers said they would not reduce near-term spending on goods and services in response to the stock market correction according to MKM. Many Chinese media outlets’ coverage of plummeting stocks has been limited.
Protection Of The Chinese Equivalent For Its English Trademark: Examples and reasons as to why some brands successfully challenge the right to their Chinese language trademarks, and others don’t.
Fake Sprouts Growing Out Of Your Head Is Now A Thing In Beijing: The latest craze sweeping China are small plastic sprouts appearing to grow from the top of wearers’ heads. Speculators say it could be inspired by a character in the popular cartoon ‘Pleasant Goat and the Big Bad Wolf”, or it could be a celebration of the blue skies in Beijing due to banned cars and closed factories leading up to the celebration of the Allied forces victory in WWII on September 3.
Internet, Social Media, Mobiles & Ecommerce
Five Keys To Connecting With China’s Wired Consumers: China’s ecommerce market is likely to exceed that of the U.S. and Europe combined within three years. Five keys to realising the opportunity are: 1) Adopt an integrated platform strategy; 2) Understand China’s vast network of distributors; 3) Harness the power of social media; 4) Leverage China’s growth in location based services; and 5) Work with platforms to understand China’s consumers.
China’s BAT Dominate Mobile User Engagement: Apps associated with Baidu, Alibaba, and Tencent account for 60% of time spent on mobiles in China, with WeChat accounting for more than half of time for consumers in metro areas. Chinese consumers spend 18.2 hours a week on mobile internet activities, of which 9.2 hours were on WeChat according to Forrester research.
Food & Beverage
More Cheese, Please! Exporters Toast China’s Taste For Pizza And Cakes: Restaurants and bakeries account for up to 80% of China’s cheese market, with the 300 million pizzas sold in China each year contributing to the growth. Cheese for children as a healthy snack accounts for as much as 20% of the market for consumers.
Changyu Chief Winemaker: Embrace The ‘New Norm’ Of Chinese Market: China’s biggest wine producing company, Changyu, is set to nurture a new generation of wine consumers through characterful branded wines that are easier to drink and understand, and wine tourism including the 400-hectare ‘Changyu International Wine City’, expected to open to the public next year.
Aus Beef Goes Online To China: Chinese consumers are able to buy Australian chilled beef direct online for the first time following a deal with JD and Bindaree Beef.
Adventurous Chinese Holidaymakers Search For Extreme Thrills Abroad Says New Data: 16% of urban Chinese consumers say they would be interested in doing extreme sports whilst on holiday, which will be further helped by locals like Zhang Shupeng who broke the world record for wingsuit flying without an oxygen mask in April this year. 74% of consumers are interested in trying the local food when on holiday, with 23% keen to learn how to cook local food in the country they are travelling in according to Mintel.
Swiss Railway Launches Special Trains For Chinese Tourists Following Complaints Of Rude Behaviour: Half of all foreign visitors who ride Rigi Bahnen’s stunning railway through the Swiss Alps are Chinese. “Their strong presence is a challenge,” according to the CEO, and prompted the launch of 20 special trains a week for Asian tourists, where toilets will reportedly be cleaned more often and signs added “showing how to use them correctly.”
Want A Star’s Wardrobe? Chinese Entrepreneur Sells Celebrity Styles With A Mathematical Approach: Chinese app Stardrobe has carved out a niche in China’s booming online fashion commerce industry by using algorithms to identify the fashion that celebrities are wearing and provide links to similar clothes that consumers can buy. 60 million users have registered, with 15 million active a month.
How Much Do Top Fashion Brands Really Depend on China?: Swatch is the foreign fashion brand most reliant on Chinese consumers shopping in China and internationally, accounting for 49% of its global revenue. Richemont follows with 41% of sales, Ferragamo at 38%, Gucci and Hermès at 35%.
Why Millions in China Downloaded L’Oreal’s Makeup Genius App: 4.7 million Chinese consumers have downloaded L’Oreal’s ‘Makeup Genius’, which allows them to use their smartphone as a mirror and see how they’d look with different cosmetics, including heavier makeup which is still uncommon in China.
China’s Luxury Ecommerce Boom Means ‘Ostrich’ Brands Lose Out: 74% of all Chinese consumers have bought luxury products online, with 40% having done it more than five times in the past year. Among those under 25 years old, 94% want to buy online in the future, and 88% in the 25-34 age group wish to do so according to Exane BNP Paribas.
A Hundred Apps Bloom in China as Millions Bank on Their Phones: 390 million consumers in China have registered to use mobile banking, part of the booming online payments sector.
There was once a time when Chinese consumers would simply buy the biggest and most expensive model to show off their status. How things have changed.
The well-publicised Government’s clampdown on corruption, increasing sophistication and changing tastes are all contributing to less conspicuous purchases. Yet there are a number of other factors also influencing purchase behaviour and marketing decisions.
Changing Government policy has driven pricing and product development strategies across the board, such as cheaper imported skincare products and Porsches with less horsepower. The RMB’s appreciation, coupled with growing international tourism, overseas shopping agents, cross border ecommerce and a lack of trust in locally-stocked items, has also seen many consumers buying products abroad instead of in Chinese shops. This has driven a flurry of price reductions in the Mainland from brands such as Chanel, Prada and most recently Gucci.
Slowing GDP growth is also altering consumer outlooks and spending habits, although consumer confidence is rising fastest among the higher income households who are the most likely to buy imported brands.
Whilst these changes are creating new challenges every month in China, many of those brands who are adapting and innovating are flourishing. We can look no further than Apple, which continues to see booming sales and loyalty in a crowded smartphone market full of countless cheap alternatives. Understated luxury brands such as Ferragamo and Tiffany & Co are reporting strong growth.
Premium travel experiences will continue to rise, reflected in the investments that Fosun is making in the travel industry. And consumers continue to buy more premium food and beverage, noted by JD who just invested $70 million in online fruit seller FruitDay, for whom 80% of sales comprise of imports.
It gets back to understanding China, keeping up with the changes in preferences and policies, and delivering products that best meet those needs. We hope this newsletter helps a little, and even moreso our services. Enjoy this week’s Skinny.
China’s Older Consumers: China’s elderly represent a huge and growing market, but are relatively untapped and often poorly marketed to.
Despite Equity Rally, Confidence Subdued in China: Last month’s Westpac MNI China Consumer Sentiment Indicator showed a 3.1% decline in confidence for lower income households, but a 2.8% increase for higher income households. 7.8% of consumers believe that local shares “were the wisest place to keep their savings.”
Internet, Mobile & eCommerce
These Charts Show Just How Important China is to Apple: Apple users in China expect to upgrade their devices in 18.6 months on average, versus 22.8 months in the U.S. and 29 months in Japan. Almost 30% of Chinese Apple users are loyal – with 43% expecting to spend more on their next smartphone. Apple accounts for almost 60% of China’s premium market, with the recent rise mainly at the expense of Samsung according to UBS.
Buying Chinese Gadgets a Patriotic Move? Domestic Tech Consumers are Divided: 66% of Chinese consumers in their 30s prefer international tech brands as they felt they served as “status symbols.” 59% agreed that buying domestic tech products could support the Chinese economy, however 58% said that buying international brands such as Apple or Samsung wouldn’t really hurt the Chinese economy as so many were made in China according to a CEA survey.
Alibaba to Bolster Next-Day Delivery Services: Alibaba’s logistics affiliate Cainiao hopes to offer next-day deliveries in 50 cities by the end of this year, up from the current 34 cities. Alibaba owns 48% of Cainiao.
Food & Beverage
China’s JD Leads $70M Investment in Fresh Produce eTailer FruitDay: Ecommerce fruit seller, FruitDay, has completed a $70 million funding round led by JD.com, who will enhance FruitDay’s existing delivery network with their own. 80% of FruitDay’s inventory is imported from countries like the U.S., Australia, New Zealand, Chile, and South Africa. The retailer expects to have 10 million customers by the end of the year, with 80% of orders placed over mobile.
Fried Out: Why Has China Become a Burden For KFC?: Once the pin up kid in China, KFC continues to see falling revenue in the market. The chain isn’t innovating enough to meet changing consumer needs and competition, leading to just one quarter of KFC’s customers thinking that it is unique.
Dog Meat Vendor With 1,000 Frozen Carcasses Dies After Shooting Himself With Poisoned Dart: A Hunan dog meat seller reportedly died after the toxic arrow struck him in the leg during a demonstration on how to handle a deadly crossbow to execute canines. Dogs sell for as little as ¥8 ($1.30) to be used for cooking. An online petition calling on the Chinese government to end the dog meat trade has reached 460,000 signatures.
Investment Firm Fosun Group to Build Empire of Holiday Attractions for Chinese Tourists: China’s largest non-state owned investment conglomerate Fosun is shopping up a storm, investing in tourism and entertainment assets such as Club Med, Thomas Cook, Cirque du Soleil and a slew of domestic developments. The company is “charting a resolute course into the leisure sector,” which will “build a series of top brands to serve the Chinese people.”
Health & Beauty
L’Oréal to Lure China Shoppers With Price Cuts: L’Oréal will cut prices on most imported cosmetics further than the recent tariff reduction from 5% to 2% on imported skincare products. Estee Lauder is doing the same. Tarriffs on other consumer products such as suits, shoes and diapers are being reduced by more than 50% on average. The moves are hoped to further fuel domestic consumption growth and deter China’s flourishing gray market where agents sell imported goods cheaper than they can be bought domestically.
Why There’s Never an Excuse to Test on Animals: Cosmetic brands such as New Zealand’s Antipodes are staying true to their values by not testing on animals, and are still finding success in China by selling online and shipping direct to consumers. Last year, China loosened its rules by allowing the sale of some locally-produced cosmetics not tested on animals.
Euro Weakness Upsets Luxury Brand Pricing: The falling Euro has seen the average price of luxury goods in Paris 39% lower than in China, compared to 26% last year. Products such as the Louis Vuitton Speedy 30 bag is now 61% more expensive in China.
Gucci’s 50% Price-Cut Triggers Mad Rush in China: Following Chanel and Prada’s lead, Gucci has slashed many of its prices by 50% in China – the biggest discounts it has ever given. Following a five-day VIP pre-sale, the sale reportedly caused a stampede, with consumers even lining up overnight in Chengdu – a rare sight in China.
Wealthy Chinese Head Abroad to Buy Diamonds Without Scrutiny: Tiffany & Co. and De Beers are seeing more Chinese travelling abroad to buy diamonds, away from the watchful eye of the authorities and due to the lower Euro. Even with the Government’s anti graft campaign, men are still expected to give jewellery to their wives and partners. Chinese are the main engine behind global diamond growth, which is expected to increase 8% a year until 2018.
Porsche’s Wealthy Buyers in China Choose Cheaper Models: Porsche’s average Chinese customer is 35 versus 53 in the U.S. Sales have tripled in China since 2010 to become the car maker’s largest market, but buyers are opting for cheaper models. Porsche has adapted by equipping its Macan with a smaller 4-cylinder engine which cuts taxes on the car by 30%. Premium carmakers such as Porsche, BMW, and Audi, have relied on China for about 50% of their global profits. The Cayenne’s base price in China is more than double that of the U.S.
New Balance has done some great work positioning itself as an aspirational, but affordable fashion brand in China. It’s hard to walk a block in China’s hipper urban suburbs without seeing young fashionistas sporting NB shoes. But for those sitting in the Boston HQ, that success would have been slightly tarnished by the recent ruling that New Balance’s Chinese brand name, XīnBǎiLún, was violating a Guangdong businessman’s trademark.
The ¥98 million ($16 million) fine and order to stop using the brand name is another stark reminder of the importance of trademarking in China. Last year, after failing to trademark its Chinese name, Australia’s rock star wine brand Penfolds found itself locked in a legal battle with a trademark squatter, which saw them lose sales of at least 5,000 cases a year and valuable exposure in premium IHG hotels. Even Pfizer was beaten to trademark the most commonly used Chinese name for its Viagra, “WěiGē”.
One of the more interesting examples of brand theft was from California’s In-N-Out Burger, who had no immediate plans to expand to China. Four California-educated law graduates trademarked the chain’s legendary menu items throughout Asia and Europe. Opening their restaurant Caliburger in Shanghai, they promised many of the well-known In-N-Out staples such as Double-Double, Animal Style, and Protein Style burgers and fries, and even an iteration of the iconic palm tree on their branding. Following a confidential settlement – rumoured to involve a significant sum of money – Caliburger changed their burger names and decor.
China has a “first to file” policy for trademarking, meaning little emphasis is placed on the rightful owner of a brand. The cost to trademark in China can be surprisingly inexpensive. Even foreign brands who are unsure if they will ever launch in China, should consider taking the simple steps to register their trademark here.
When China Skinny localises branding for a client, in addition to creating something that resonates and is relevant to the target market, we also ensure that the proposed trademark is available and filed before investing in the brand. In addition to brand trademarks, regional branding for food and beverage can be protected, and even shapes such as Toblerone’s triangle chocolate. Best get onto it if you haven’t already. Go to Page 2 to see this week’s China news and highlights.
The differences between Mainland China and Hong Kong consumers are again illustrated in recent travel research by Ruder Finn and IPSOS. Where Mainland Chinese tourists cited various types of shopping as the three most common activities on their last leisure trip, holidaying Hong Kongers weren’t as bothered about visiting a store.
While many Mainland tourists are planning more cultural and dining experiences – like their Hong Kong cousins – consumers in the two markets are still worlds apart, which should be reflected in marketing and communications strategies.
The different spoken and written languages in the two markets are just the start of it. Digital channels also bear little resemblance to one and other – Google is the search engine of choice in HK, whereas Mainlanders are on Baidu and Qihoo. In Hong Kong, Facebook, Instagram, WhatsApp and YouTube outrank WeChat, Weibo and Youku by a country mile.
But the differences span far deeper than that. Social media is significantly more relevant and influential in Mainlanders’ consumer journey than it is for Hong Kongers. Although consumers in Hong Kong have had free speech for a long time, most Chinese have only managed to voice their opinion in the past few years since participating in online social channels – and they’re making up for lost time. The transparency of social media also helps overcome the trust issues that are much more prevalent in China.
Many Chinese are taking overseas trips, buying cars and even appliances for the first time, whereas Hong Kong has been a bastion of consumerism for generations, which also leads to notable variances in purchase behaviour.
In many ways, Hong Kong consumers have greater similarities with Americans than Mainlanders, so it’s surprising how many businesses still lump them into one generic Greater China strategy – even using HK-based teams who often have very little view into the Mainland to do it. Mainland China varies so much by region and city tier, that it often justifies a matrix of tactics in itself.
There’s no doubting a presence in Hong Kong can help in the Mainland Chinese market – like Korea, HK’s music and screen industries are popular in the Mainland. It is the number one destination for outbound tourists on shopping jaunts. Similarly, there’s talk in Beijing of a more propaganda-heavy school curriculum in Hong Kong. Nevertheless, it is likely to be many years, if ever, before the two markets could be realistically grouped into one. We hope you enjoy this week’s Skinny.
Chinese Consumers Crave Real-Time Brand Interaction: 58% of Chinese consumers feel that they have a shared, two way relationship with brands. The top four brand behaviours that correlate to Chinese consumers’ societal needs are: (1) Inviting consumers to help represent products and services to others; (2) Inviting consumers to be a part of the development and refinement process for products or services; (3) Taking a stand on the issues the consumer most cares about; and (4) Helping consumers achieve their personal goals.
Johnson & Johnson Has the Right Formula for Growth in China: J&J believes the key to its success in the Chinese market has come from building close connections with consumers and constant innovation.
The Differences Between Mainland Chinese and Hong Kong Luxury Travellers: The three most common activities for Mainland Chinese tourists on their last leisure trip: 61% went shopping for products with local characteristics, 54% shopped at luxury product destinations and 47% shopped at luxury outlets. Hong Kong are less focused on shopping, and more about experience: 60% fine dined, 41% went to an entertainment complex and 29% went to a spa according to Ruder Finn and IPSOS.
Chinese Travellers Just Love Japan: Japan is top of the wish list for Chinese traveller for 2015, up from 10th place in 2013 according to a TravelZoo survey of wealthy travellers. 15% of those surveyed were looking for cultural experiences in Japan, 13% wanted to rent a car and explore, 13% were interested in gastronomy and just 1.4% into shopping. The U.S., New Zealand, Australia and Taiwan rounded out the top-5 destinations.
‘Uncivilised’ Chinese Tourists to be Ranked on Level of Bad Behaviour by Authorities: In a bid to improve Chinese tourists’ behaviour abroad, China’s National Tourism Administration is launching a black list of tourists next quarter, with individuals’ bad behaviour reported and ranked. Airline operators, hotels and tour agents can access to the data before they decide to do business with potential customers.
Internet & Ecommerce
Alibaba in Major Initiative to Court China Consumer for U.S. Retailers: Alibaba is ‘crossing the river by feeling the stones’ by taking a relatively conservative strategy into the American market. It is initially offering U.S. retailers easier access to the massive Chinese consumer market through its platforms, payment systems and logistics. This will heighten awareness of Alibaba and build goodwill in the U.S., laying the groundwork for a longer-term play. Neiman, Saks and Ann Taylor have signed up so far. $15 billion U.S.-to-China cross-border consumer sales last year are expected to grow to $291 billion by 2020.
Amazon China Outlines Key Targets: Amazon is picking China’s online shopping 2015 “hotspots” will be: health products, fashion, overseas shopping and entertainment. Sales traffic from social media increased 35% last year, contributing to 81% overall sales growth. 65% of sales came from second and third tier cities.
China’s Express Delivery Business Tops the World: Businesses made 14 billion deliveries in China last year, 52% more than in 2013 according to the State Post Bureau.
Food & Beverage
Half of Chinese Food Plants Fail Inspections: 48.1% of the 7,000 Mainland China food audits, tests and inspections last year failed to meet acceptable standards from HK-based AsiaInspection. The main issues were mislabelling product ingredients, falsifying of ingredients’ expiry dates and rogue substances such as pesticides, antibiotics, heavy metals, bacteria and viruses.
Chinese Food Companies Find Room to Grow in Australia, NZ: Chinese companies are investing in Australia and New Zealand’s agricultural sectors, helped by favourable terms from FTAs. Everything from dairy plants, to sugar plantations, to cattle stations are receiving investment. 53% of beef imports to China came from Australia in 2013. Although some Australian vineyards are getting bids from multiple Chinese buyers, changes in purchasing rules has slowed things down.
Q&A: Fashion Maven Anna Wintour on China’s Sartorial Future: “I’m sure within the next generation, we’ll see the emergence of Chinese designers on a global scale,” says Vogue Editor Anna Wintour.
China’s Box Office Sales Surge 36% in 2014: China’s box office grew by more than a third last year to ¥29.6 billion ($4.8 billion) in 2014. Domestic films accounted for 54.5% of takings, and made up 36 of the 66 films that surpassed the ¥100 million mark. 15 new screens were added a day taking the total to 23,600.
Survey Discusses Chinese Consumers Feelings on Cosmetics Industry: There are 5,000 cosmetics companies in China – 10% account for 80% of the sales. Chinese consumers main concerns with cosmetics are fakes, false advertising, and high product prices according to a survey. Yet less than 5% of the respondents said that they had filed complaints, with 50% attributing their predicament to bad luck. More than half wanted foreign products to be marketed first in their original countries before being allowed to be sold in China.
Lingerie Takes a Back Seat as Victoria’s Secret Opens in China: Victoria’s Secret officially entered China last week, but lingerie will take a back seat to beauty products. Panties are are for sale, but not bras.
Meet The Chinese Luxury Shoppers Who Are Taking Over The World: Five profiles of China’s luxury consumers, whose consumption is expected to grow from 35% to 50% of total global purchasing over the next decade. Worldwide luxury sales are expected to double by 2025.